06 Jun 2013

Evicting a tenant in breach of the lease: what's "reasonable time" to serve the termination notice?

by Eva Oraham, Peter McMahon

What is a reasonable time to respond to a breach notice, or an acceptable response, will depend on the circumstances at hand.

Landlords who want to re-enter the premises and terminate a lease for a breach of covenant for a non-rent breach generally must serve a breach notice on the tenant, and give the tenant reasonable time to remedy the breach (if it is capable of remedy), or to pay reasonable compensation – but what is a reasonable time?

There is surprisingly little guidance on this, but it is an important point, because failure to give reasonable time could give the tenant reasonable grounds to challenge the validity of the termination notice and leave the landlord unable to terminate the lease.

Some help can be found in Primary RE Limited v Great Southern Property Holdings Limited (Receivers and Managers Appointed) (In Liquidation) [2011] VSC 242. In that case, the Victorian Supreme Court held that it will depend on the circumstances, but crucially the breach notice should not leave the tenant speculating about what action it should take (and by when) to prevent the landlord from terminating the lease.

The lease, the breach notice and the time given to remedy the breach before termination

The case stemmed from a complicated managed investment scheme involving forestry assets in various States. The scheme's responsible entity leased land for forestry activity purposes. It then subleased the land to a number of growers (effectively, subtenants).

The forestry scheme experienced difficult times and the tenant was unable or unwilling to comply with its obligations under the lease (to manage the plantation).

The landlord served breach notices on the tenant across several states for failure to establish, tend and manage the plantation crop in accordance with sound silvicultural and environmental practices; spray herbicide and insecticide where appropriate; fertilise and harvest the plantation crop; conduct appropriate weed control where appropriate and remediate land erosion.

These breach notices were followed by termination notices served at varying dates, but generally one month after the initial breach notice was served (the shortest period being one month and two days).

The tenant then challenged the validity of the termination notices because, among other things, they failed to allow a "reasonable time" for the tenant to remedy the breaches and that properly tending and managing the plantation could take over a year.

What was a reasonable time before terminating the lease?

The Court held that the following factors should be considered in determining "reasonable time":

  • the purpose for which the notice is given;
  • the nature of the breach alleged; and
  • what is required to be done to avoid forfeiture.

The Court also held that the time it takes to remediate the breach is not the critical point. The purpose of the notice in this case was to allow the tenant to consider its position and give a meaningful response.

The response did not require "foliar and soil tests…mixing and application of fertiliser, weed and insect control regimes, the creation of firebreaks or replanting to take place".

What the Court deemed a "sufficient response" to avoid forfeiture was for the tenant to:

  • recommence management of the plantations in compliance with the lease and forestry agreement;
  • propose to pay compensation for any injury to the reversion; and
  • communicate a genuine intention to do as proposed.

The Court decided that one month was a "reasonable time" to remedy the breach.

Lessons for landlords serving breach notices

What is a reasonable time to respond to a breach notice, or an acceptable response, will depend on the circumstances at hand.

In the above circumstances, although there was a lot of time-consuming work to be done to remedy the breaches, the Court held it reasonable for the tenant, within one month of being served with a breach notice, to do the few things the Court suggested to evidence "remorse" and an intention to fully comply each the breach notice.

When contemplating issuing a breach notice, you should be clear about:

  • why you are giving the notice;
  • the nature of the breach alleged;
  • what your tenant has to do to avoid forfeiture; and
  • what, in all the circumstances would be an adequate response, and when it is reasonable to expect it.

If you don't, you run the risk of a successful court challenge to any termination notice you might then give – and even an unsuccessful challenge could prove expensive.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.